January 4, 2016

Update on the 2015/2016 Winter Reliability Program

9/9/16 update: The chart has been updated with final program participation results. Despite “the winter that wasn’t” (read the winter 2015/2016 operations recap), the winter reliability program remains instrumental in augmenting New England’s fuel security.

In September, the Federal Energy Regulatory Commission approved a program for the current and next two winters to address seasonal reliability challenges created by constraints on New England’s interstate natural gas pipeline system. The previous programs for winters 2013/2014 and 2014/2015 proved to be cost-effective short-term solutions to help keep the lights on in New England during very cold winter days.

Program objective

The Winter Reliability Program for 2015/2016 to 2017/2018 is designed to incentivize certain power resources to secure sufficient fuel at the beginning of winter. The ISO’s 2015/2016 winter outlook identified 4,220 MW of natural-gas-fired generation at risk of not being able to get fuel when needed on days with an average temperature of 7°F; in extreme cold, at an average of 1.6°F, up to 5,004 MW are at risk. (Read the press release and the outlook presentation.) More than 45% (about 13,650 MW) of the total generating capacity in New England uses natural gas as its primary fuel. However, multiple studies and the ISO’s operating experience show that the pipelines carrying natural gas into the region are running at or near full capacity to serve heating demand during most of the winter. Particularly on the coldest days, there is little to no remaining pipeline capacity available for sale to power generators.

New England’s winter reliability programs, developed collaboratively through the ISO’s stakeholder process, serve as a stop-gap measure until longer-term capacity market changes—Pay-for-Performance (PFP) incentives—go into effect on June 1, 2018.

Eligibility and program caps

Eligibility, qualification, and compensation caps are similar to those for the 2014/2015 winter program:

Oil: The winter reliability program is open to oil-fired generators or natural-gas-fired generators with dual-fuel capability that establish a specified amount of on-site oil inventory. Program qualification is limited, per generator, to oil inventory as of December 1 that meets or exceeds the lesser of either 85% of usable fuel storage or the supply to operate for 10 days at full load. At the end of the program, compensation is capped at the lesser of March 15 inventory, the eligible December 1 inventory, or inventory in December that is 95% of usable fuel storage or the supply to operate for 10 days at full load. (The winter 2014/2015 program cap allowed for 15 days of full load.)
Liquefied natural gas (LNG): Natural-gas-fired generators that contract for LNG can also participate. Per winter, the program is limited to all qualifying contracts on a first come, first served basis that, in aggregate, do not exceed 6 billion cubic feet (Bcf) and the daily output of the providers of LNG. Six Bcf is equivalent to about 100 million barrels of oil and 6,000,000 million British thermal units (MMBtu). At the end of the program, compensation is capped at the lesser of the December 1 and March 1 contract volumes, and may not exceed the amount of fuel necessary for the resource to operate for four days at full load.
Demand response (DR): DR resources with additional capacity beyond obligations in the Forward Capacity Market can participate as well. Per winter, no more than 100 assets at a level not to exceed 100 MW can participate; each asset can be dispatched for a maximum of 180 hours.

Final results

The table below reflects final results for oil and LNG, as of 6/27/16. The number of participants and levels of eligible participation may differ from those reported earlier; see the program rules for details on eligibility requirements at various stages, inventory caps, etc. Total costs for the 2015/2016 program are about $37.5 million.

Type	Participants	Amount eligible for compensation	Payment rate	Final program usage	Final program costs*
Oil	77 units	2.954 million barrels	$12.90/barrel	254,845 barrels (December: 21,251; January: 75,277; February: 153,985; March 1–15: 4,332)	$35.91 million (after penalties of $1.26 million)
LNG	8 units	1.278 million MMBtu	$2.15/MMBtu	None	$2.58 million (after penalties of $166,949)
DR	6 assets	26.5 MW	$1,290/MW-month	All 26.5 MW dispatched for three-hour period 1/5/16	$210,316 ($116,745 monthly payments; $93,571 energy payments)

*See the program rules for the factors that go into the calculation of program payments, such as resource types, inventory caps, and performance requirements.

The costs of the program are based on two factors:

The amount of participation, which is established through the participation levels set out in Market Rule 1, Appendix K.
The rate of compensation, which the ISO posts on the Winter Program Payment Rate webpage

Compensation is calculated as detailed in the market rules, and is based on the carrying costs of fuel oil that is unused at the end of the winter, unused LNG contract volumes, or supplemental demand response provided.

Dual-fuel commissioning update

Continuing from the 2014/2015 program are incentives for natural-gas-fired generators to add dual-fuel capability and also have sufficient oil in the tank at the start of winter. The date for establishing eligibility has passed, and no new dual-fuel commissioning is being accepted; previously-authorized commissioning must be completed on or before December 1, 2016.

The cost incurred to date for this facet of the program are $1.34 million, of a total cost cap of $5.7 million. Six units submitted intent to commission dual-fuel capability, for a total winter seasonal claimed capability addition of 1,774 MW: